Slimmer PaperlinX cuts loss

Paper merchant
PaperlinX
has reported an after-tax loss of $10.2 million for the half year, a marked improvement from the previous year’s $175.3 million loss, after streamlining the business, fixing the balance sheet and selling loss-making assets.

As flagged last month, the group was forced into a net loss position due to a valuation loss on a currency option of nearly $17 million and a net loss of $1.9 million related to discontinued manufacturing operations.

PaperlinX reported an underlying profit after tax of $8.5 million compared with a loss of $11.2 million a year ago, beating consensus.

Revenue was down to $2.4 billion in the half year from $2.74 billion a year ago on lower volumes, reflecting continued weak markets.

Newly appointed chief executive Toby Marchant said while the accounting treatment of the option was “frustrating", he was pleased with operational and cost improvements across the business.

He did not provide any full-year guidance and said paper volumes remain volatile, despite some recovery in pockets around the world such as in Central Europe and Germany.

“Volumes are bumping along the bottom," he said. “Some key markets are down 30 per cent ... part of the GFC. It’s volatile. You can have one good month followed by a bad month. Instead of thinking volumes are going to save us, it’s more about making margins."

Mr Marchant added a price signal increase of 8 per cent across the northern hemisphere underpinned production curtailment by mills and supported by the pulp price and energy costs is positive news.

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The company’s biggest shareholder Orbis Investment Management said while PaperlinX is still in turnaround mode, the progress is good.

“The cost structure has been too high, which people are now finally doing something about, which is great," managing director Simon Marais said. “In the past they relied too much on paper markets to improve. Hopefully the next three to five years they can chip away at that cost base."

PaperlinX recently closed its office in Holland and reduced staff numbers, but the market remains sceptical about PaperlinX’s ability to capture these benefits. The company has had a tough 24 months due to a sharp decline in paper prices and falling demand, while currency headwinds hurt profits and the company breached its debt convenants.

No dividend was declared on ordinary shares but with two consecutive distributions now paid on the PaperlinX step-up preference securities, the dividend block on the ordinary shares has been removed.

It’s banking syndicate in 2009 insisted no dividends be paid on ordinary shares until there were two consecutive distributions on the step-up preference securities.